Exercise 13-10 (Algo) Make or Buy Decision (LO13-3] Futura Company purchases the 78,000 starters that it installs in its standard line of farm tractors from a supplier for the price of $13.30 per unit. Due to a reduction in output, the company now has idle capacity that could be used to produce the starters rather than buying them from an outside supplier. However, the company's chief engineer is opposed to making the starters because the production cost per unit is $14.30 as shown below: Direct materials Direct labor Supervision Depreciation Variable manufacturing overhead Rent Total product cost Per Unit Total $ 7.00 3.20 2.00 $156,000 1.10 $ 85,800 0.60 0.40 $ 31,200 $14.30 If Futura decides to make the starters, a supervisor would have to be hired (at a salary of $156,000) to oversee production. However, the company has sufficient idle tools and machinery such that no new equipment would have to be purchased. The rent charge above is based on space utilized in the plant. The total rent on the plant is $85,000 per period. Depreciation is due to obsolescence rather than wear and tear. Required: What is the financial advantage (disadvantage) of making the 78,000 starters instead of buying them from an outside supplier? Exercise 13-4 (Algo) Special Order Decision [LO13-4] Imperial Jewelers manufactures and sells a gold bracelet for $407.00. The company's accounting system says that the unit product cost for this bracelet is $264.00 as shown below: Direct materials Direct labor Manufacturing overhead Unit product cost $142 83 39 $264 The members of a wedding party have approached Imperial Jewelers about buying 25 of these gold bracelets for the discounted price of $367.00 each. The members of the wedding party would like special filigree applied to the bracelets that would increase the direct materials cost per bracelet by $14. Imperial Jewelers would also have to buy a special tool for $456 to apply the filigree to the bracelets. The special tool would have no other use once the special order is completed. To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $15.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding party's order using its existing manufacturing capacity. Required: 1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party? 2. Should the company accept the special order
